BI Governor: World Enters 'Higher for Longer' Era, Rupiah Must Be Safeguarded

The direction of global central bank monetary policy is shifting. Many central banks are entering an era of high interest rates for a prolonged period, or ‘higher for longer’, as global uncertainty persists. This uncertainty stems from the closure of the Strait of Hormuz, a vital oil distribution route, following the war in the Middle East. As a result, crude oil prices have surged past US$100 per barrel and global inflation is expected to rise. The knock-on effects include sustained high global interest rates, elevated bond yields, and heightened inflationary pressures. Consequently, investors are shifting to safe-haven instruments, such as holding cash in developed countries like the United States in US dollars. This has driven the US dollar to strengthen, reflected in the DXY index which has risen above 100, putting pressure on currencies worldwide, including the Indonesian rupiah. Bank Indonesia Senior Deputy Governor Destry Damayanti stated that the central bank raised its benchmark interest rate by 100 basis points within a month to maintain rupiah stability. She expressed hope that the higher rate would increase the attractiveness of rupiah instruments for offshore or foreign investors. Damayanti also noted that the US Federal Reserve is expected to maintain high interest rates for longer, with a hawkish bias and potential further hikes this year. She emphasised that Bank Indonesia’s policy must remain prudent and capable of attracting foreign capital inflows to be converted into rupiah, thereby strengthening the exchange rate. She added that in the current conditions, there is no room to discuss lowering the BI Rate.